ICE circuit breakers to cover energy, US softs
PROVIDED BY Reuters - 5:46 PM 03/20/2012
* ICE started rolling out IPL circuit breakers last week
* New IPLs to cover energy, U.S. softs
* Aim is to reduce market volatility
By John McCrank and Marcy Nicholson
NEW YORK, March 20 (Reuters) - IntercontinentalExchange Inc (ICE)
said on Tuesday it will introduce circuit breakers for
certain ICE Futures Europe contracts, including Brent crude, and
for U.S. softs futures like cocoa and sugar, to cut down on the
likelihood of extreme market volatility.
The Atlanta-based exchange operator first rolled out circuit
breakers, or interval price limits (IPLs), last week for U.S.
Dollar Index futures contracts and certain Russell Index futures
contracts, aimed at preventing price spikes that are often
associated with high-speed electronic trading.
Circuit breakers have been used in equities markets for
nearly a quarter of a century, but did not stop the May 6, 2010
flash crash in which the Dow briefly plunged nearly 700 points.
Regulators have said the trigger thresholds were too broad.
ICE said it kept the regulators' concerns in mind when
developing its IPL policy.
But some traders expressed concerns that the IPL amounts may
actually be too small and the hold periods too short.
"If you have such narrow trading, this market's going to
constantly be stop, go, stop, go," said Shawn Hackett, of
Hackett Financial Advisors in Florida.
IPLs set upper and lower limits for given markets within
specific timeframes. Prices that move beyond those set amounts
trip the circuit breaker, putting the market on hold for a
pre-determined amount of time, giving participants a chance to
decide if the move was warranted.
During the hold period, the affected futures contract can
still be traded, but only within the IPL range. When the
contract begins trading again, a new IPL range is set after the
hold, based on the price at the end of the hold.
ICE said that it can adjust the parameters of the IPLs at
any point if needed.
MARKET STABILITY
Massive price spikes, though rare, have raised questions
about the stability of high-speed electronic markets that are
dominated by computer-driven, algorithmic trade, and which have
largely replaced open pit trading.
Since ICE agricultural futures went electronic in 2007 the
relatively small cocoa market, for instance, has experienced
several violent and short-lived moves that appeared disconnected
with any fundamental news, traders say.
A year ago the ICE cocoa futures market plunged more than 11
percent in seconds before rebounding a minute later, and many
suspected computer-generated dealings. ICE canceled some trades
as traditional players complained of market distortion.
"It will break the fall for a few seconds but I don't know
if it really does anything to change the overall situation,"
Jack Scoville, a vice-president with The Price Futures Group in
Chicago, said of the IPLs.
"Some of those markets, once they get rolling, they keep
rolling."
BRENT, COCOA AMONG NEW
ICE plans to phase in the new IPLs in Europe on March 26 and
April 1, and in the United States on April 2.
ICE Futures Europe lists the leading global crude oil
benchmarks and sees half of the trade in the world's crude oil
and refined product futures in its markets.
It said IPLs for EUA Futures, EUA Futures, ERU Futures, EUAA
Futures, EUAA Futures, and Dutch TTF Futures, would be effective
beginning March 26.
IPLs for Brent Futures, Brent NX Futures, Gasoil Futures,
Low Sulphur Gasoil Futures, WTI Futures, Rbob Futures, and
Heating Oil Futures, would be effective April 1.
In the United States, ICE said the circuit breakers for
Sugar No. 11, Coffee "C", Cotton No. 2, Cocoa and frozen
concentrated orange juice futures contracts would come into
effect on April 9.
